North Port Firefighters' Pension-Local Option Plan v. Temple-Inland, Inc. (936 F. Supp. 2d 722, 2013)

United States District Court for the Northern District of Texas 2013-03-28

Commerce and Trade

Citations

Full opinion text

MEMORANDUM OPINION AND ORDER

JANE J. BOYLE, District Judge.

Before the Court are the Motions to Dismiss filed June 20, 2012 by Defendants Temple-Inland, Inc. (“Temple-Inland”), Kenneth M. Jastrow II (“Jastrow”), Kenneth R. Dubuque (“Dubuque”), Ronald D. Murff (“Murff’), and Craig E. Gifford (“Gifford”) (collectively, “Defendants”) at documents 37, 42, 44, and 47. The Motions seek dismissal of Plaintiffs Amended Class Action Complaint (“Amended Complaint”) filed April 19, 2012. For the reasons stated below, Defendants’ Motions are GRANTED. Plaintiffs’ claims against Temple-Inland are DISMISSED WITHOUT PREJUDICE for failing to plead facts supporting their claims with particularity, for engaging in impermissible group and puzzle pleading, for failing to allege that Temple-Inland “made” any of the alleged misstatements in the Amended Complaint, failing to allege Temple-Inland’s scienter, and for failure to allege loss causation. Plaintiffs’ claims against Jastrow, Dubuque, Murff, and Gifford (“the Individual Defendants”) are hereby DISMISSED WITHOUT PREJUDICE for failing to plead facts supporting their claims with particularity, for engaging in impermissible group and puzzle pleading in their allegations against the Individual Defendants, and for failure to adequately allege the Individual Defendants’ scienter, loss causation, and control person liability.

TABLE OF CONTENTS

I. BACKGROUND.........................................................733

II. LEGAL STANDARDS ...................................................736

III. ANALYSIS .............................................................738

A. Group and Puzzle Pleading as to all Defendants.........................739

B. Did Temple-Inland or Jastrow “Make” the Statements at Issue?...........740

1. Temple-Inland-...................................................740

2. Jastrow.........................................................743

C. Were the Statements by Any of the Defendants False or Misleading?.....745

1. Alleged GAAP Violations .........................................745

2. Allegedly False Financial Figures..................................748

3. Other Alleged Misstatements.......................................749

D. Scienter.............................................................750

1. Allegations Common to All Individual Defendants ...................750

2. Jastrow.........................................................751

3. Dubuque........................................................753

I. Murff...........................................................755

5. Gifford..........................................................756

6. Temple-Inland...................................................757

E. Safe Harbor Defense..................................................757

F. Loss Causation......................................................761

G. Statute of Limitations................................................763

H. Control Person Liability..............................................765

IV. CONCLUSION..........................................................766

I.

BACKGROUND

This action is a private securities fraud putative class action on behalf of all purchasers of Guaranty Financial Group, Inc. (“GFG”) common stock between December 12, 2007 and August 24, 2009 (the “Class Period”) against Temple-Inland and certain of Temple-Inland’s and Guaranty’s officers and directors (collectively “Defendants”) for violations of the Securities and Exchange Act of 1934 (the “Exchange Act”). FAC ¶ 1. Guaranty Financial Group was a bank-holding company that owned all the stock of Guaranty Bank (the “Bank”). Id. at ¶ 8. For simplicity, the Court will refer to both GFG and the Bank as “Guaranty.” Temple-Inland is a holding company that operates several businesses through its various subsidiaries, including corrugated packaging, forest products, building products, and real estate and financial services businesses. Id. at ¶ 7.

During December of 2007, Guaranty was spun off from Temple-Inland and common shares of Guaranty were distributed to Temple-Inland shareholders (the “SpinOff’). Id. at ¶ 8. Plaintiffs allege that prior to the Spin-Off, Temple-Inland dominated and controlled Guaranty and its subsidiaries such that each was the alter-ego of Temple-Inland, and that Temple-Inland used the Bank to support, create demand, and generate profits for its core building products business, rather than operating it as a traditional bank. Id. This alleged conduct led at least in part to Guaranty’s eventual bankruptcy filing and a suit filed on August 22, 2011 by Kenneth L. Tepper, the Liquidation Trustee for GFGI Liquidation Trust and Assignee of the Federal Deposit Insurance Corporation (“FDIC”), Tepper v. Temple-Inland, Inc., No. 3:11-cv-2088 (N.D.Tex.) (the “Tepper Complaint”). See id. at ¶¶ 8, 20.

The Tepper Complaint asserted numerous claims involving fraudulent and preferential transfers and breach of fiduciary duty against Temple-Inland, TIN, Inc., Forestar (USA) Real Estate Group Ine., Kenneth M. Jastrow II, Randall D. Levy, Arthur Temple III, and Larry E. Temple. These claims were eventually settled for $80 million, with $38 million paid to Mr.’ Tepper as Liquidation Trustee and $42 million to the FDIC, with no admission of liability by the defendants in that case. See Order Approving Compromise and Settlement Agreement Ex. A, filed Nov. 19, 2012, In re Guaranty Fin. Grp. Inc., Case 09-35582-bjh11 (Bankr.N.D.Tex.).

Shortly after the Tepper Complaint was filed, Plaintiffs filed the instant case against Defendants Temple-Inland, Jastrow, Dubuque, Murff, and Gifford alleging securities fraud in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934,15 U.S.C. §§ 788(b) and 78t(a), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. Plaintiffs base these allegations on their review of Temple-Inland and Guaranty SEC filings, other publicly available reports, filings, and articles, the Tepper Complaint, and interviews of former company employees. FAC ¶ 20. These interviews apparently include five confidential witnesses who are forrher seniorlevel employees for Guaranty, each' of whom was employed by Guaranty during the Class Period. Id. at ¶ ¶ 22-27.

While the Tepper Complaint centered on claims of improper transfers and breach of fiduciary 'duty, the Amended Complaint in this case is based exclusively on Plaintiffs’ allegations that the Defendants violated federal securities laws. More precisely, Plaintiffs allege that during the Class Period, Guaranty issued materially false and misleading financial statements which overstated the fair value of its mortgage-backed securities (“MBS”) portfolio and understated unrealized losses of that portfolio. Id. at 48. As part of this alleged fraudulent scheme, Guaranty “engaged in improper financial practices that were designed to, and did, artificially inflate the Bank’s regulatory capital, thereby masking the true financial condition of the Company,” by understating the Bank’s losses so that its “minimum regulatory capital requirements would not be breached” and the Bank “would be afforded the time necessary to procure much needed capital.” Id. at ¶ 41. Specifically, Plaintiffs allege that:

[D]uring the Class Period, Defendants, in violation of GAAP and SEC rules and regulations, caused the Company to issue materially false and misleading financial statements by masking hundreds of millions of dollars in OTTI losses on its MBS portfolio.... During the Class Period,- Guaranty represented that the financial reports it issued were presented in conformity with GAAP. In violation of GAAP and SEC rules and regulations, Defendants:

(a) reported fair values and unrealized losses on the Company’s MBS portfolio that' the Defendants knew to be materially overstated and understated, respectively;

(b) failed to timely record an OTTI in the value of the Company’s MBS portfolio; and

(c) failed to disclose material events about the diminution in the value of the MBS portfolio occurring subsequent to December 31, 2007 and prior to the filing of the 2007 Form 10-K.

FAC ¶¶ 47-48. Plaintiffs allege that this overstatement of fair values and understatement of losses was a result of Guaranty’s use of improper pricing models to value its MBS portfolio. Id. at ¶ 52. Plaintiffs further allege that Defendants “repeatedly and falsely highlighted” the safety of Guaranty’s portfolio, though they have since withdrawn their repeated allegations that Defendants falsely represented that their MBS portfolio consisted solely of “senior tranche” securities. See id. at ¶ 53; Pis.’ Resp. 73-74.

Despite these repeated assurances regarding the safety of its MBS portfolio, Guaranty’s financial situation continued to deteriorate throughout the Class Period. This deterioration eventually resulted in Guaranty falling below required capital ratios prescribed by the Office of Thrift Supervision (“OTS”) and culminated in a $1.45 billion write down of the value of Guaranty’s MBS portfolio on July 17, 2009. Unable to procure the necessary capital, Guaranty was eventually closed by the OTS and the FDIC was appointed as a receiver, with the company filing for bankruptcy protection under Chapter 11 shortly thereafter. FAC ¶ ¶ 186-190.

In response to the filing of the Amended Complaint, Defendants Temple-Inland, Jastrow, Dubuque, and Gifford together with Murff filed four separate motions to dismiss. In their motions, Defendants argue, inter alia, that Temple-Inland and Jastrow did not make any of the alleged misstatements, that the Amended Complaint fails to allege fraud with particularity and relies on impermissible group and puzzle pleading, that certain of the alleged statements are protected by the Private Securities Litigation Reform Act’s safe harbor, that the Amended Complaint fails to properly plead loss causation or control person liability, and that Plaintiffs’ claims are barred by the statute of limitations. Plaintiffs responded to the motions and Defendants filed their replies to Plaintiffs’ response. The motions are now ripe for disposition.

II.

LEGAL STANDARDS

In analyzing a complaint under Federal Rule of Civil Procedure 12(b)(6), the Court accepts all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff. Martin K. Eby Constr. Co. v. Dall. Area Rapid Transit, 369 F.3d 464, 467 (5th Cir.2004). The complaint should be dismissed only if it does not include enough facts to state a claim to relief that is plausible on its face. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A claim must be “nudged ... across the line from conceivable to plausible.” Id. “A pleading that offers ‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of action will not do.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955). “Factual allegations must be enough to raise a right to relief above the speculative level .... ” SW Bell Tel., LB v. City of Hous., 529 F.3d 257, 260 (5th Cir.2008) (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955).

Special pleading rules apply to fraud claims. Pursuant to Federal Rule of Civil Procedure 9(b) (“Rule 9(b)”), all allegations of fraud must be stated with particularity. Under Fifth Circuit precedent, pleading fraud with particularity sufficient to satisfy Rule 9(b) requires the pleader to identify the “time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what that person obtained thereby.” Tuchman v. DSC Commc’ns Corp., 14 F.3d 1061, 1068 (5th Cir.1994) (internal citation omitted). Stated differently, Rule 9(b) requires “the who, what, when, where, and how” of the alleged fraud to be laid out in the complaint. Benchmark Elecs., Inc. v. J.M. Huber Corp., 343 F.3d 719, 724 (5th Cir.2003).

Securities fraud claims brought by private litigants are also subject to the pleading requirements imposed by the Private Securities Litigation Reform Act of 1995 (“PSLRA”). Section 78u-4(b) of the PSLRA requires a plaintiff pleading a false or misleading statement or omission under federal securities law to “specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed.” 15 U.S.C. § 78u-4(b)(l). At a minimum, the PSLRA pleading standard incorporates that of Rule 9(b). ABC Arbitrage Plaintiffs Grp. v. Tchuruk, 291 F.3d 336, 349-50 (5th Cir.2002); see also Southland Sec. Corp. v. INSpire Ins. Solutions, Inc., 365 F.3d 353, 362-63 (5th Cir.2004).

In order to plead fraud with specificity as required by the PSLRA, the complaint must also “distinguish among those they sue and enlighten each defendant as to his or her particular part in the alleged fraud.” Southland, 365 F.3d at 365 (emphasis in original). Allegations against “Defendants” as a group are not imputable to any particular individual “unless the connection between the individual defendant and the allegedly fraudulent statement is specifically pleaded.” Id. Thus, allegations that each defendant controlled the contents of and participated in writing a company’s SEC filings, reports, and releases, without more, are insufficient to meet the requirements of the PSLRA. Id. Similarly, complaints must not engage in “puzzle pleading” by “isolating allegations and elements while leaving it to the [c]ourt to infer a connection,” as “it is the parties’ burden to present succinct pleadings which clearly lay out” the required elements — a court is not required to “waste its resources attempting to construe which statements are actionable and why each is actionable.” In re Alamosa Holdings, Inc., 382 F.Supp.2d 832, 857-58 (N.D.Tex.2005).

The PSLRA also requires that the plaintiff “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind,” frequently referred to as the defendant’s scienter. 15 U.S.C. § 78u-4(b)(2); Southland, 365 F.3d at 363. Scienter under the PSLRA means an “intent to deceive, manipulate, or defraud or that severe recklessness in which the danger of misleading buyers or sellers ... is either known to the defendant or is so obvious that the defendant must have been aware of it.” Id. at 366 (citation omitted). Severe recklessness “is ‘limited to those highly unreasonable omissions or misrepresentations that involve not merely simple or even inexcusable negligence, but an extreme departure from the standard of ordinary care, and that present a danger of misleading buyers or sellers which is either known to the defendant or is so obvious that the defendant must have been aware of it.’ ” Abrams v. Baker Hughes, Inc., 292 F.3d 424, 430 (5th Cir.2002) (citation omitted).

The facts as alleged by plaintiffs must give rise to a “strong inference” of scienter, which “must be more than merely plausible or reasonable- — -it must be cogent and at least as compelling as any opposing inference of nonfraudulent intent.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 314, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007). In evaluating scienter, a court “must engage in a comparative evaluation; • it must consider, not only inferences urged by the plaintiff ... but also competing inferences rationally drawn from the facts alleged.” Id. at 314, 127 S.Ct. 2499. Further, “the allegations should not be read in isolation, but taken together as a whole to see if they raise the necessary strong inference of scienter,” considering “whether all facts and circumstances ‘taken together’ are sufficient to support the necessary strong inference of scienter on the part of the plaintiffs.” Abrams, 292 F.3d at 431 (citation omitted). “Properly pleaded circumstantial evidence will suffice to withstand dismissal' if the circumstantial evidence justifies a strong inference of scienter,” but a court “will not strain to find inferences favorable to the plaintiffs” when determining whether scienter allegations have been sufficiently pleaded. In re Alamosa Holdings, Inc. Sec. Litig., 382 F.Supp.2d 832, 843 (N.D.Tex.2005) (citing Nathenson v. Zonagen, Inc., 267 F.3d 400, 424-25 (5th Cir.2001) and Goldstein v. MCI WorldCom, 340 F.3d 238, 244 (5th Cir.2003)).

III.

ANALYSIS

Defendants filed their motions to dismiss on June 20, 2012, each asserting multiple grounds for dismissal of the Amended Complaint. The Court examines those arguments next along with the Plaintiffs’ corresponding responses. First, for clarity and because the four motions to dismiss contain substantially similar arguments challenging the sufficiency of the Plaintiffs’ pleadings, instead of analyzing each ground for dismissal motion-by-motion, four times over, the Court has, to the extent possible, arranged its analysis by topic of dismissal (i.e., group pleading, scienter, etc.) and grouped each of the Defendant’s arguments under each topic. With respect to Temple-Inland and Jastrow, because certain of their arguments apply uniquely to them, these arguments are addressed separately.

Before the Court begins its analysis, it is important to note that there has been a shift in Plaintiffs’ position in this case. Specifically, in response to Defendants’ motions to dismiss, Plaintiffs withdrew one of their primary grounds for recovery and, in so doing, rendered moot significant portions of Defendants’ motions to , dismiss. See Pis.’ Resp. 73-74. More to the point, Plaintiffs, in their Amended Complaint, rely on two “cornerstone” allegations against the Defendants in this. case. One is their allegation is that Defendants failed to comply with Generally Accepted Accounting Principles (“GAAP”) in the valuation of Guaranty’s MBS portfolio and thereafter reported fair values and unrealized losses that were materially false. Their other cornerstone allegation, which they now disavow, is that during the Class Period the Defendants falsely reported that nearly half of Guaranty’s MBS portfolio were “senior tranche.” See FAC ¶¶ 59, 110, 116, 126, 130, 136, 145, 149, 162, 165, 173,175, 196. By withdrawing their senior tranche theory, Plaintiffs have eliminated significant portions of the Defendants’ arguments from consideration, though they have not necessarily rendered the Court’s task any simpler. As will be addressed next, Plaintiffs’ extensive reliance upon group and puzzle pleading and their repeated use of conclusions framed as .facts have hindered the Court’s ability to discern the viability of the Amended Complaint under Rule 9(b) and the PSLRA.

A. Group and Puzzle Pleading as to all Defendants

Despite the withdrawal of one of their cornerstone allegations, Plaintiffs’ Amended Complaint remains deficient in several respects under Rule 9(b) and the PSLRA due to an overall lack of clarity in pleading — commonly described as the use of “group” and “puzzle” pleading. For example, numerous references to non-party “Guaranty” or to the generic “Defendants” generally — as the parties responsible for the allege false and fraudulent statements — are found throughout the operative complaint, leaving it to the Court to guess which of the Individual Defendants Plaintiffs refer to by these non-specific labels. Moreover, the numerous references-to “Guaranty” and “Defendants” combined with the sheer breadth of the Plaintiffs’ Amended Complaint, spanning eighty pages, compounds the difficulty of discerning with any precision exactly who did what to whom, how they did it, and, importantly, how the pleader knows they did what the 'pleader says they did — all essential requirements of pleading securities fraud.

Further, seventy pages of the Amended Complaint are devoted to what Plaintiffs describe as their “Substantive Allegations” while only two pages describe their actual causes of action under the federal securities laws. Given the length of the allegations and the exacting pleading standards for PSLRA cases, the parties were directed to submit a chart to aid the Court’s determination of whether the Plaintiffs’ voluminous pleadings satisfy the standards for securities fraud cases. See Chart to Aid the Court in Considering Defendants’ Motions to Dismiss the Claims filed Nov. 21, 2012 (the “Chart”). Toward that end, the Chart was supposed to provide a breakdown of the Plaintiffs’ pleadings organized under specific categories of PSLRA and Rule 9(b) pleading requirements. The information contained in the Chart, ideally, should correspond with the actual allegations in the Amended Complaint. However, the Chart submitted, rather than aiding in the Court’s analysis of the legal sufficiency of the Amended Complaint, instead confirms its shortcomings. For example, the Chart reveals that numerous allegations of the Amended Complaint which appear to be allegations of false statements by the Defendants are, in fact, not intended to be considered actionable conduct. Replete through the Chart is the refrain by Plaintiffs that much of the conduct referred to in their Amended Complaint under their “Substantive Allegations” category “neither alleges nor purports to allege any fraudulent statement.” See generally Chart (addressing FAC ¶¶ 1-113, 114,116, 117, 125, 126, 135, 136, 140, 141, 145, 149, 150, 151, 152, 153, 154, 155, 161, 162, 166, 167, 172, 173, 175, 176-191, 192-201, 202-204, 205-06, 207). In other words, from the Chart and only from the Chart — as opposed to the Amended Complaint — can the Court glean that numerous of Plaintiffs’ self-described “Substantive Allegations” are not intended to be actionable at all.

A further review of the Chart underscores the problem, discussed above, caused by Plaintiffs’ sweeping references to non-party “Guaranty” or to the “Defendants” generally — as opposed to naming specific individuals — in the Amended Complaint. Specifically, certain paragraphs of the Amended Complaint name “Guaranty” as the maker of certain false statements, while Plaintiffs then appear to clarify in the Chart that those statements are, in fact, attributable to specific individuals. By way of example, in paragraph 118 of the Amended Complaint, Plaintiffs identify “Guaranty” as the maker of particular statements. Later, Plaintiffs, in the Chart, refer to paragraph 118 and specify “Dubuque and Murff’ as makers of the statements. This same confusing scenario is played out in other paragraphs of the Amended Complaint including paragraph 124, where the Amended Complaint refers to “Guaranty” as the party responsible for the statement at issue, but the Chart identifies “Dubuque and Murff’ as the responsible parties. In other words, the Amended Complaint reflects numerous statements attributed to “Guaranty” whereas the Chart, in several places, identifies specific individuals as responsible for making those statements. Obviously, Plaintiffs may not amend their Amended Complaint through the use of the Chart, and the Court may not consider allegations not pleaded in the operative complaint.

Finally, as mentioned above, Plaintiffs have, since the filing of the motions to dismiss, withdrawn a cornerstone allegation in their case — the senior tranche allegation, repeated through the complaint— further hindering the Court’s ability to assess the viability of Plaintiffs’ Amended Complaint under Rule 9(b) and the PSLRA.

For the reasons stated above, the Court DISMISSES the Amended Complaint due to impermissible group and puzzle pleading. The Amended Complaint, standing alone, simply does not sufficiently allege each Defendant’s role in the alleged fraud and requires the Court to piece together its allegations in order to determine what the false and misleading statements were, why they were false and misleading, and who made the statements. Out of an abundance of caution, and in order to further refine the pleadings, the Court will now address other arguments made in support of Defendants’ Motions to Dismiss. In doing so, the Court relies on the additional clarification provided by Plaintiffs’ Response while noting that Plaintiffs may not amend their complaint through such pleading.

B. Did Temple-Inland or Jastrow “Make” the Statements at Issue?

1. Temple-Inland

Plaintiffs seek to hold Temple-Inland liable for alleged misstatements contained within Guaranty’s Form 8-K filed on December 14, 2007, which included an Information Statement describing the details of the Spin-Off and providing information about Guaranty. See Pis.’ Resp.; FAC ¶ 114. Plaintiffs claim that this Information Statement is false and misleading because it fails to disclose that:

(b) the Bank employed flawed asset pricing models that materially overstated the value of the MBS portfolio and created a false impression about the financial solvency of the Company;

(c) the Company’s financial reporting misrepresented the true fair value of the Bank’s MBS portfolio;

(d) the Company’s financial reporting misrepresented its true financial condition, liquidity, capital and ability to satisfy its future debt obligations as they matured;

(e) the Company, through the Bank, was engaged in unsafe and/or unsound banking practices; and

(f) the Company’s financial statements were not fairly presented in conformity with GAAP.

FAC ¶¶ 115-16. In response, Temple-Inland argues, inter alia, that even assuming the statements were false and misleading, it did not “make” the alleged misstatements and thus may not be held liable for them.

Under Rule 10b-5, it is unlawful for “any person, directly or indirectly ... [t]o make any untrue statement of a material fact” in connection with the purchase or sale of securities. 17 C.F.R. § 240.10b-5. The maker of a statement “is the entity with authority over the content of the statement and whether and how to communicate it.” Janus Cap. Grp., Inc. v. 1st Derivative Traders, — U.S. -, 131 S.Ct. 2296, 2303, 180 L.Ed.2d 166 (2011). In the context of a public SEC filing, the entity that “bears the statutory obligation to file” and that the SEC has recorded as filing the document ordinarily “makes” the statements. Id. at 2304-05. Further, assisting in creating or drafting a false statement does not subject the drafter to Rule 10b-5 liability, as it is only the speaker who has “ultimate authority over the statement,” and therefore makes the statement. Id.

Even assuming that the alleged misstatements in the Information Statement are false, Temple-Inland may not be held liable for any of these statements, as it did not make them as required by Janus. In making this determination, the Court rejects Plaintiffs’ “adoption” theory of liability as applied to this case, based on Janus. In Janus, the United States Supreme Court held that because allegedly false statements included in mutual fund prospectuses were made by an investment fund, the investment adviser which also acted as administrator for the investment fund could not be held liable even though the adviser may have may taken part in the drafting of the prospectuses. The court explained:

For purposes of Rule 10b-5, the maker of a statement is the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it. Without control, a person or entity can merely suggest what to say, not ‘make’ a statement in its own right. One who prepares or publishes a statement on behalf of another is not its maker. And in the ordinary case, attribution within a statement or implicit from surrounding circumstances is strong evidence that a statement was made by — and only by— the party to whom it is attributed. This rule might best be exemplified by the relationship between a speechwriter and a speaker. Even when a speechwriter drafts a speech, the content is entirely within the control of the person who delivers it. And it is the speaker who takes credit — or blame — for what is ultimately said.

Id. at 2302. Thus, the court explained that providing online access to the investment fund’s prospectuses was not a basis for liability:

Merely hosting a document on a Web site does not indicate that the hosting entity adopts the document as its own statement or exercises control over its content. In doing so, we do not think [the investment adviser] made any of the statements in [the investment fund’s] prospectuses for purposes of Rule 10b-5 liability, just as we do not think that the SEC ‘makes’ the statements in the many prospectuses available on its Web site.

Id. at 2305 n. 12 (citation omitted).

Here, the Information Statement contained within the December 14, 2007 Guaranty Form 8-K, while on Guaranty letterhead and filed by Guaranty, was preceded by a letter in Temple-Inland stationery and signed by Defendant Jastrow (the “Jastrow Letter”), who was Chairman and CEO of Temple-Inland. Defs.’ App. Supp. Mot. Dismiss 527-34 (“Defs.’ App.”). The Jastrow Letter is addressed to Temple-Inland stockholders and describes Temple-Inland’s plan to separate Temple-Inland into three stand-alone public companies. Id. at 531. Further, the Letter refers shareholders to the Information Statement, stating, “[t]he enclosed information statement, provided to all Temple-Inland stockholders, describes the spin-off of Guaranty.” Id.

While this is a closer ease than Janus, Plaintiffs have not sufficiently alleged that Temple-Inland “made” any of the alleged misstatements contained within the Information Statement. As in Janus, there is no allegation that Temple-Inland filed the Form 8-K or falsely attributed the Form 8-K to Guaranty. See Janus, 131 S.Ct. at 2305. Rather, the Form 8-K was filed by Guaranty and signed by Scott A. Almy, Guaranty’s Executive Vice President. Defs.’ App. 529. Further, as in Janus, the corporate formalities appear to have been observed, and Plaintiffs do not claim otherwise. See Janus, 131 S.Ct. at 2304. While the Janus court leaves open the possibility that a company could adopt a document as its own and be subject to liability thereby, id. at 2305 n. 12, neither inclusion of the Jastrow Letter with the Information Statement nor the forwarding of these materials to Guaranty shareholders transforms Temple-Inland into a “maker” of the Information Statement under federal securities law. Simply put, Plaintiffs have not alleged that Temple-Inland had ultimate authority over the Information Statement such that it could be liable for any misstatements contained within it. Under the facts as alleged by the Amended Complaint, and under Janus, any misstatements or omissions in the Information Sheet were “made” by Guaranty, not Temple-Inland. As Temple-Inland did not make any of the allegedly fraudulent representations, it cannot be held liable for them. Accordingly, Temple-Inland’s Motion to Dismiss is hereby GRANTED to the extent it seeks dismissal of Plaintiffs’s Section 10(b) and Rule 10b-5 claim against Temple-Inland based on failure to allege that Temple-Inland made any of the misstatements at issue. Count 1 is hereby DISMISSED WITHOUT PREJUDICE as to Temple-Inland.

Although the Court does not dismiss the claims against Temple-Inland with prejudice, the Court is dubious that any future amended complaint would cure the deficiencies listed above, in light of Janus. As such, the Court DENIES WITHOUT PREJUDICE Plaintiffs’ request for leave to amend its complaint as to Temple-Inland at this time. See Hart v. Bayer Corp., 199 F.3d 239, 248 n. 6 (5th Cir.2000) (court is not required to grant leave to amend if the defect is “simply incurable”). Should Plaintiffs wish to replead as to Temple-Inland, they must file a motion for leave to amend in' accordance with the Local Rules and the Federal Rules of Civil Procedure.

2. Jastrow

Jastrow argues that as an outside director of Guaranty, he may not be held hable for statements made by Guaranty or the Individual Defendants. The only representations the Amended Complaint specifically links to Jastrow are statements made by Jastrow during a conference call which preceded the Class Period; Guaranty’s December 14, 2007 Form 8-K, which included the Information Statement with the Temple-Inland cover letter signed by Jastrow on behalf of Temple-Inland and Guaranty’s cover letter signed by Jastrow and Dubuque; and Guaranty’s 2007 Form 10-K, filed on Feb. 29, 2008 and signed by Jastrow. FAC ¶¶ 35, 107-110, 114, 131. With respect to the conference call, as discussed previously, a defendant may not be held liable for pre-Class Period statements, and Plaintiffs do not seek to hold Jastrow liable for such statements. See Pis.’ Resp. 34.

With respect to the 8-K and the 10-K, Jastrow signed these documents in his capacity as an outside director, specifically Chairman of the Board of Directors of Guaranty. Jastrow cites a case outside of the Fifth Circuit for the proposition that outside directors “cannot be assumed to have assisted in preparing, reviewing, or approving offering materials ... even when an outside director’s name or signature appears in a company statement.” See In re Nat’l Century Fin. Enters., 504 F.Supp.2d 287, 298 (S.D.Ohio 2007). In Jastrow’s view, given that he is an outside director, he may not be held liable for statements within those documents without specific allegations describing his role in creating the documents at issue. Jastrow also argues that the same rule is required under Janus, given his contention that outside directors of a company cannot be assumed to have ultimate control over that company’s statements.

Although this question has not been squarely addressed by the Fifth Circuit, the weight of authorities within the Fifth Circuit indicates that an outside director’s signature on a document is sufficient to make him liable for any false or misleading statements within that document. In Southland, for example, the Fifth Circuit explained:

[Corporate officers may not be held responsible for unattributed corporate statements solely on the basis of their titles, even if their general level of day-to-day involvement in the corporation’s affairs is pleaded. However, corporate documents that have no stated author or statements within documents not attributed to any individual may be charged to one or more corporate officers provided specific factual allegations link the individual to the statement at issue. Such specific facts tying a corporate officer to a statement would include a signature on the document or particular factual allegations explaining the individual’s involvement in the formulation of either the entire document, or that specific portion of the document, containing the statement.

365 F.3d at 365 (emphasis added). The court in Financial Acquisition Partners LP v. Blackwell, similarly held that “[c]orporate statements can be tied to officers if plaintiffs allege they signed the documents on which the statements were made or allege adequately their involvement in creating the documents.” 440 F.3d 278, 287 (5th Cir.2006) (citing Southland, 365 F.3d at 364-65). Defendants make much of the fact that the Southland and Blackwell courts discussed the signatures of officers but not outside directors. However, some courts within the Fifth Circuit have explained that both directors and officers may be held liable for corporate statements if they signed the document containing the statements. See, e.g., In re BP p.l.c. Sec. Litig., 843 F.Supp.2d 712, 779 (S.D.Tex.2012) (citing Southland and Blackwell). Another court highlighted the significance of an outside director’s signature, explaining:

Outside Directors assert that this Court previously noted the limited significance of an outside director’s signature on an SEC filing in In re Enron [Corp. Sec., Derivative & ERISA Litig.], 258 F.Supp.2d 576, 588 (S.D.Tex.2003).... This Court completely disagrees; in fact its discussion emphasizes exactly the opposite, ie., that “the SEC has attempted to make signatures on corporate documents that are filed with the SEC carry significant weight.”

In re Enron Corp. Sec., Derivative & “ERISA” Litig., 540 F.Supp.2d 800, 819 n. 19 (S.D.Tex.2007) (other citation omitted). As such, the Court DENIES Jastrow’s Motion to Dismiss to the extent it seeks dismissal of Plaintiffs’ claims against him based on their failure to allege, in addition to his signature, Jastrow’s specific involvement in the filings at issue. Such determination is in keeping with Janus — by signing a corporate document, the signer is stating to the world that he, with other signers, is jointly making the statements within the document. Thus Jastrow may be liable for any misstatements within Guaranty’s December 14, 2007 Form 8-K and Guaranty’s 2007 Form 10-K as a “maker” of the statements under Janus.

The Court also recognizes that Jastrow’s signature contained within the December 14, 2007 Form 8-K is on a Guaranty cover letter preceding the Information Sheet containing the alleged misstatements, and not on the Information Statement itself. The Information Statement itself is not attributed to any author. Nevertheless, Jastrow signed the cover letter in his capacity as Chairman of the Board of Directors of Guaranty. As such, Jastrow is acting as a maker of the Information Statement under Janus, in contrast to the Temple-Inland cover letter which merely forwarded another corporation’s document.

C. Were the Statements by Any of the Defendants False or Misleading?

In order to plead securities fraud based on misstatements or omissions, a plaintiff must identify the statements at issue and allege that they were false or misleading when made. All Defendants argue that the Amended Complaint does not allege with specificity any false or misleading statements. The Court will examine whether the Amended Complaint pleads that Guaranty or any of the Individual Defendants made false or misleading statements below.

1. Alleged GAAP Violations

All Defendants argue that the Amended Complaint does not allege any GAAP violations by them or Guaranty. In response, Plaintiffs argue that the Amended Complaint alleges that Defendants violated GAAP when they knowingly overstated fair values and understated unrealized losses on the Company’s MBS portfolio, failed to timely record an OTTI in the value of the Company’s MBS, and failed to disclose material events about the diminution in the value of the MBS portfolio between December '31, 2007 and the filing of the 2007 Form .10-K. FAC ¶ 48. The Amended Complaint also states that Guaranty was using a flawed pricing model to value its portfolio, because:

(i) it mischaracterized nearly half of the MBS portfolio as senior tranche securities, which resulted in materially misstated inputs being recorded in Guaranty’s asset pricing models; (ii) the Bank did not model for loan credit risk until sometime in 2008; (iii) the asset pricing model incorporated outdated “parameters”; (iv) the cash flow data used in valuing the MBS portfolio was assumed and not independently verified; (v) liquidity factors were eliminated in valuing the MBS; (vi) the Bank did not model for loans in the portfolio on an individual basis; and (vii) the MBS pricing model failed to account for the changes in interest rate spreads on adjustable rate mortgages and only modeled the loan interest rate caps at the time the securities were purchased.

FAC ¶ 52.

The Amended Complaint further claims that Guaranty violated GAAP by failing to record an OTTI in its MBS portfolio of at least $483 million by no later than June 30, 2008. Id. at ¶¶ 80-106. In Plaintiffs’ view, Guaranty was required to record an OTTI as “[t]he massive diminution in the value of, and the significant increase in the rate of average delinquencies on, Guaranty’s MBS portfolio” were “red flags” indicating to the Defendants that Guaranty “would not be able to collect all amounts due on its MBS portfolio in accordance with their contractual terms, which rendered such investments impaired on an other-than-temporary basis pursuant to GAAP,” in addition to the downgrading or placement on negative watch of Guaranty’s MBS as additional red flags. Defs.’ Resp. 25-26 (citing FAC ¶ 92, 94). In their view, such alleged failure to record the required OTTI led to a corresponding overstatement of Guaranty’s income, retained earnings, and regulatory capital no later than June 30, 2008. FAC ¶ 95.

Finally, Plaintiffs argue that Guaranty violated GAAP by failing to disclose material subsequent events. They point to Guaranty’s 2007 10-K filed February 29, 2008, which disclosed that Guaranty had a combined unrealized loss totaling $274 million in 2007, when the actual loss was actually much greater, and which purportedly failed to disclose that the unrealized loss on the MBS portfolio, as determined by Guaranty, had increased by hundreds of millions of dollars since December 31, 2007 (citing FAC ¶ 103), given that 31 days later, Guaranty reported that the cumulative unrealized loss on its MBS portfolio totaled $1.070 billion, four times the amount reported at December 31, 2007. FAC ¶ ¶ 102-105.

The Court first notes that several of the allegations regarding Guaranty’s purported GAAP violations are based on statements of confidential witnesses, who were directors or vice presidents of Guaranty. In asserting securities fraud under the PSLRA, plaintiffs may rely on confidential witnesses without naming the witnesses, “provided they are described in the complaint with sufficient particularity to support the probability that a person in the position occupied by the source would possess the information alleged,” ABC Arbitrage Plaintiffs Grp. v. Tchuruk, 291 F.3d 336, 352 (5th Cir.2002). As pleaded by the Amended Complaint, Plaintiffs have described the confidential witnesses they relied upon with sufficient particularity such that they need not be named. CW1, for example, purchased MBS on behalf of Guaranty and was the Secretary of Guaranty’s Asset Liability Committee (“ALCO”), and Plaintiffs allege that the proper valuation of MBS was discussed at the ALCO meetings. As another example, CW2 was responsible for valuation of Guaranty’s MBS portfolio, which is at the center of Plaintiffs’ claims. Thus, the Court considers the allegations of the confidential witnesses in assessing Plaintiffs’ claims.

In response to these allegations of GAAP violations, Defendants collectively argue that determinations of the fair value of MBS and whether to record an OTTI in the value of the MBS involve a great deal of judgment and that GAAP does not prescribe any one way of performing such valuation. See, e.g., Thor Power Tool Co. v. C.I.R., 439 U.S. 522, 544, 99 S.Ct. 773, 58 L.Ed.2d 785 (1979) (GAAP “toleratefs] a range of ‘reasonable’ treatments, leaving the choice among alternatives to management”); Ind. Elec., 537 F.3d at 536 (‘Valuations of assets, ... as well as the application of sophisticated accounting standards like ‘fair value,’ leave broad scope for judgment and informed- estimation; this is another way of saying that determinations on such matters can differ reasonably and sizably.” (citations omitted)). In their view, Plaintiffs have only alleged that certain confidential witnesses would have valued the MBS differently or would have recorded an OTTI, but neither result was required by GAAP. Defendants also argue that Plaintiffs have not alleged GAAP violations with specificity, specifically what the value of the MBS was when it was purportedly overstated, when an OTTI should have been recorded, and what the magnitude of the OTTI was.

Recognizing that GAAP rules regarding determinations'of fair value and whether to recognize an OTTI require judgment calls, the Court finds that the issue of whether Guaranty violated GAAP is not appropriate for disposition on Defendants’ Rule 12 motions. See Barrie v. Intervoice-Brite, Inc., 397 F.3d 249, 257 (5th Cir.2005) (in securities fraud case where parties disputed whether defendants’ accounting methods were proper, dismissal of case on motion to dismiss was inappropriate given the fact-based nature of the defense); but see In re Capstead Mortg. Corp. Sec. Litig., 258 F.Supp.2d 533, 550-54 (N.D.Tex.2003) (finding that complaint did not allege facts which showed that defendant violated GAAP). Plaintiffs allege, for example, that Guaranty failed to follow GAAP based on FAS No. 115 and FAS No. 124, which state that in assessing whether a security suffered an OTTI, “[i]mpairment shall be assessed at the individual security level” and a statement from a confidential witness that during Class Period, Guaranty did not assess MBS losses at the individual loan level. See FAC ¶ ¶ 84-85. Taking this allegation as true, Plaintiffs have alleged that this practice violated GAAP. The Court notes the parties’ extensive briefing on other alleged practices in connection with the valuation of Guaranty’s MBS, but also finds that the determination of whether these practices violated GAAP is not’appropriate at this time. Thus, to the extent Defendants seek dismissal of the Amended Complaint based on failure to allege GAAP violations, the motions are DENIED.

2. Allegedly False Financial Figures

The Court reaches a different conclusion, however, with respect to Plaintiffs’ allegations that Guaranty understated its losses, overstated the value of its MBS, and failed to properly record an OTTI in 2008. Plaintiffs themselves state that “[t]he whole thrust of the Complaint ... is that the Bank misrepresented the value of its MBS portfolio and failed to record OTTI that it was required to record.” Pis.’ Resp. 38 n.. 29. Unfortunately, their allegations regarding what the actual valuations of the MBS portfolio were, when an OTTI should have been recorded, and what the magnitude of the OTTI should have been are simply not specific enough to show that Guaranty reported false or misleading financial figures.

The Amended Complaint states that Guaranty’s MBS portfolio suffered a nearly half billion OTTI no later than June 30, 2008 and that Guaranty’s failure to record this OTTI resulted in an overstated value of its MBS portfolio and an understated figure for Guaranty’s losses. See, e.g., FAC 199. However such allegations do not -indicate what the MBS valuation should have been when the purported misstated values-were reported. As explained by one court in this District,

[I]if an allegation is made that Defendants falsely ‘overstated their net income’ ... supporting facts, if any exists, would not be difficult to set forth. All one has to do is state that for the first quarter of 1997, or whatever the relevant period, Defendants represented that their net income was “X amount” when in fact its net income was ‘Y amount,’ and, of course, if the ‘Y amount’ alleged is based on information and belief, state with particularity the facts which support that belief.

In re Capstead Mortg., 258 F.Supp.2d at 550. Another court explained that the plaintiff failed to allege with specificity how a Form 10-K was misleading with respect to cost overruns because, inter alia, the plaintiff did “not allege how large the overruns were at the time of the filing of the Form 10-K.” Magruder v. Halliburton Co., Civ. Action No. 3:05-cv-1156-M, 2009 WL 854656, at *22 (N.D.Tex. Mar. 31, 2009) (citing Ind. Elec., 537 F.3d at 536 (holding that “plaintiffs cannot make allegations that strongly support the defendants’ guilty knowledge of securities fraud ... by throwing out large numbers with no factual basis for ascertaining what the ‘truth’ was”)). This case is similar to Indiana Electrical. After first noting the complaint’s “voluminous citations to accounting rules,” 537 F.3d at 535, the court explained that while plaintiffs alleged devices that allowed the defendant to “pad its earnings, massively, they make no attempt to estimate by how much the earnings were inflated. There is no standard of comparison to what the correct numbers would have been.” Ind. Elec. at 536 (emphasis added). Here, without stating what the correct numbers would be in the 2007 10-K, for example, Plaintiffs focus on statements by confidential witnesses to show that the process for generating the numbers in the 10-K was flawed, and then repeat the half a million OTTI figure that they claim should have been recorded by June 2008. Such allegations are .not sufficient to show with specificity that the statements containing the purported inflated figures were false when made. Similarly, allegations that Guaranty misrepresented its “true financial condition, liquidity, capital, and ability to satisfy its future debt obligations” and omitted material facts regarding its “unsafe and/or unsound banking practices,” are not specific enough to show that Guaranty made false statements. See FAC ¶ 116(d)-(e).

The Court also finds that the Amended Complaint fails to plead that Guaranty made a false statement or omission based on Guaranty’s failure to record an OTTI no later than June 2008 and based on Guaranty’s restatement in March 2009 which reflected a $1.45 billion OTTI. While the Court has already determined that the issue of whether Guaranty violated GAAP is not appropriate for resolution on a Rule 12 motion, stating that Guaranty should have recorded an OTTI no later than June 2008 and that Guaranty should have recorded the $1.45 billion OTTI earlier is not specific enough to show that Guaranty’s financial statements were false when made. While the Court recognizes that discovery has been stayed pursuant to the PSLRA, Plaintiffs must allege what they believe the actual figures should have been in the statements alleged to be false, and the Amended Complaint does not allege those facts. As such, to the extent that Defendants seek dismissal of the Amended Complaint’s claims which are based on false or misleading financial figures, the motions are GRANTED. The Amended Complaint’s claims based on false or misleading financial figures are DISMISSED.

3. .Other Alleged Misstatements

The Amended Complaint’s pleadings regarding Guaranty’s and the Individual Defendants’ representations that its MBS was senior tranche and AAA rated are also insufficient to allege that such statements were false or misleading. Plaintiffs now recognize that Guaranty’s MBS were characterized in their prospectuses as senior tranche but still seem to argue that such representations were misleading, given that “in many instances, they are far from the most senior, and have as many as 22 layers of higher priority above them” and that “it nonetheless remains true that only two of the Bank’s many MBS tranches were the most senior and that Defendants used the ‘senior’ status of the Bank’s MBS portfolio, and the triple A rating of that portfolio, to disguise the known, inflated value of that portfolio in violation of Section .10(b) and Rule 10b-5.” Pls.’ Resp. 73-74 (citations omitted). However, the Amended Complaint does not properly , allege that this characterization was material or misleading. Even though the MBS may not be the most senior tranche, there is no allegation that the most senior tranche is the only tranche that is properly considered senior. There are also insufficient allegations to indicate that the Individual Defendants knew or should have known that Guaranty’s MBS, while AAA rated by independent rating agencies, should not have in fact been rated AAA As such, the Amended Complaint does not sufficiently allege that Defendants’ statements describing their MBS as senior tranche or AAA rated were false or misleading when made.

In light of the foregoing, Defendants’ Motions to Dismiss, to the extent they seek dismissal of Plaintiffs’ claims based on failure to plead with specificity that Defendants’ statements or omissions were false or misleading when made are GRANTED IN PART and DENIED IN PART. Plaintiffs’ Section 10(b) and Rule 10b-5 claims are DISMISSED WITHOUT PREJUDICE to the extent they are based on the Amended Complaint’s allegations of fraudulent financial figures and Guaranty’s or Defendants’ representations that Guaranty’s MBS were senior .tranche or AAA-rated.

D. Scienter

Even assuming that the Amended Complaint properly alleges that Guaranty or the Individual Defendants made material false or misleading statements or omissions, Plaintiffs must allege that such statements were' made with scienter, or that Defendants made them with “an intent to deceive, manipulate, or defraud or severe recklessness.” Ind. Elec., 537 F.3d at 533 (citation omitted). Under this standard, simple or even gross negligence are insufficient to meet the PSLRA’s scienter requirement. See, e.g., Abrams, 292 F.3d at 430. The Court will examine whether the Amended Complaint alleges a strong inference of scienter as to each of the Individual Defendants below.

1. Allegations Common to All Individual Defendants

Plaintiffs point to general allegations of scienter as to all Defendants, including the magnitude of GAAP violations, corroboration of multiple witnesses, and Defendants’ general motive to understate losses so as to maintain minimum regulatory capital requirements and have more time to procure much needed capital.

The Court has already .discussed the alleged GAAP violations above and determined that the issue of whether GAAP was violated is not appropriate for resolution at this time. The Court notes, however, that unlike many cases where the company has in effect acknowledged that it did not follow GAAP by restating its financials, here, Guaranty has never restated the MBS valuations and profits and losses at issue, with the exception of the Office of Thrift Supervision’s July 2009 restatement of Guaranty’s March 2009 Thrift Financial Report reflecting a $1.45 billion OTTI on the MBS portfolio. See FAC ¶¶ 47, 186. Even if Guaranty had restated its financials and violated GAAP, though, these types of errors can “easily arise from negligence, oversight or simple mismanagement, none of which rise to the standard necessary to support a securities fraud action,” Abrams, 292 F.3d at 433, and the alleged violations by Guaranty appear to have been repeated by numerous other companies during the Class Period. At the same time, the failure to record an OTTI of half a million dollars would have a large effect on Guaranty’s bottom line, and the OTS’s July 2009 OTTI restatement resulted in Guaranty “having negative capital” and seemed to be the “last straw” in Guaranty’s long and gradual decline. Given that the issue of whether Guaranty violated GAAP is disputed but the alleged magnitude and extent of the violations is large, the Court finds that this factor contributes to an inference of scienter but, standing alone, does not contribute to a strong inference.

With regard to motive and opportunity, Plaintiffs allege that Guaranty understated its losses so that its minimum regulatory capital requirements would not be breached and so that the company would be afforded time necessary to procure much needed capital via private placement offerings. FAC ¶ 41. Here, Guaranty’s survival as a going concern was at stake apparently from the date of the Spin-Off, an allegation supported by the fact that Guaranty’s worsening financial situation eventually resulted in its bankruptcy filing. As such, Plaintiffs have alleged more than the general desire to improve financial results. See In re Cabletron Sys. Inc., 311 F.3d 11, 39 (1st Cir.2002) (serious and worsening deterioration of company’s financial health properly alleged motive as “[t]his is more than the usual concern by executives to improve financial results; the executives’ careers and the very survival of the company were on the line”). However, the Court also notes that the problem of declining value of MBS was widespread during the Class Period, to the extent that the future of the entire financial sector was seemingly at stake and this motive would be common to virtually every holder of significant amounts of mortgage-backed securities. As such, the Court finds that the Amended Complaint’s allegations of motive contribute somewhat to an inference of scienter.

2. Jastrow’s Scienter

Plaintiffs also argue that they have sufficiently alleged the scienter of Jastrow, CEO of Temple-Inland and former Chairman of the Board of Directors of Guaranty In support of their contention that Jastrow knew Guaranty was making false statements, Plaintiffs argue that: a) Jastrow was apprised of Guaranty’s precarious financial situation and the riskiness of its MBS portfolio before the Spin-Off; b) Jastrow opined that the real estate markets in California were deteriorating, partly due to adjustable rate mortgages being reset, coupled with mortgagor difficulties in obtaining refinancing in a tight credit and underwriting market; c) Jastrow noted that the deteriorating market conditions during 2007 had a material adverse effect on the value of the Bank’s assets, especially because the underlying mortgages with respect to the Bank’s MBS portfolio consisted of a high concentration of California option ARMs, and d) Jastrow tried to distract from thd dangers of Guaranty’s risky highly MBS-concentrated portfolio by touting the portfolio as “right at AAA.” Pis.’ Resp. 49-50 (and citations therein). The Court will examine these allegations below.

a) Jastrow was apprised of Guaranty’s precarious financial situation before the Spirir-Ojf.

The actual allegation in the Amended Complaint referenced by Plaintiffs states that “Defendants knew that the Bank was significantly undercapitalized” and “Temple-Inland determined that the Bank’s MBS portfolio would contribute to sustained losses by the Bank, with adverse financial consequences to Temple Inland.” FAC ¶ 35. However, such group-pleaded allegations are insufficient to show that Jastrow knew that the Bank was undercapitalized or that the Bank was improperly valuing its MBS portfolio. Further, even assuming that Jastrow knew of Guaranty’s financial situation, such knowledge does not lead to the inference that he knew Guaranty was improperly valuing its MBS.

b) Jastrow opined that the real estate markets in California were deteriorating.

The Amended Complaint alleges that the Executive Committee of Temple-Inland’s Board of Directors held a meeting at which Jastrow “opined that the real estate markets in California were deteriorating, but it does not identify when this meeting allegedly occurred. See FAC ¶ 35(a). Nevertheless, the Court does not find that this statement indicates any scienter as to the Bank’s allegedly fraudulent accounting practices. Such statement regarding the California real estate market was both publicly known and also acknowledged by Guaranty in its December 14, 2007 Form 8-K. See Defs.’ App. 10. Further, as discussed by Jastrow, “[t]he issue for scienter purposes is not knowledge of whether the California housing market was deteriorating, but rather knowledge of whether the AAA rated, non sub-prime mortgage-backed securities would deteriorate to such an extent that the Bank would be unable to collect the principal and interest on those securities.” Jastrow Mot. Dismiss 8.

c) Jastrow noted that deteriorating market conditions during 2007 had a material adverse effect on the value of the Bank’s assets.

Although Plaintiffs’ Response states that Jastrow made this statement, the Amended Complaint makes this allegation without attributing it to any individual, though it does appear in the Amended Complaint after the allegation regarding Jastrow’s statement about the declining real estate market in California. Instead, this statement appears to be Plaintiffs’ own statement regarding the California real estate market’s effect on the Bank’s assets. Even assuming that Jastrow made such a statement, though, such statement does not lead to the conclusion that Jastrow knew that Guaranty was improperly valuing its MBS or should have recorded a half billion OTTI by June 2008, especially considering that there is no ind